Green Bond Issuance Reaches Record
Green finance market resilient, poised for 2021 expansion, positives emerge across green, social, sustainability & transition bonds, sovereign club to grow, annual $1trillion coming closer
In a year characterised by uncertainty in all walks of life, green bond issuance rebounded in the second half of 2020 to reach a record-breaking USD269.5bn by the end of December, just above Climate Bonds 2019 final total of USD266.5bn (2018: USD171.4bn).
After a strong first quarter, second quarter green bond issuance was impacted by the COVID-19 pandemic, but a record breaking third quarter ensured a strong finish.
The 2020 figure is the highest since market inception and maintains the trend of nine consecutive years of increased green market growth. Green bonds, loans and sukuk had originated from 53 countries in 2020.
In a positive sign of product diversification, green loans and green sukuk origination more than doubled, rising from 11 countries in 2019 to 23 in 2020.
Record $269.5bn green issuance 2020: Pandemic year pips 2019 total by $3bn. US again leads annual rankings ($51.1bn), Germany 2nd ($40.2bn) France 3rd ($32.1bn).
Our full 2020 #greenfinance review & forecasts for 2021: https://t.co/IzeIOcNeOd #greenbonds #greenloans #greensukuk pic.twitter.com/P4gEWTaKp1
— Climate Bonds (@ClimateBonds) January 25, 2021
2020 saw 60% Average Annual Growth since 2015 – Cumulative $1Trillion Green Milestone reached
Since 2011, the annual issuance of green debt instruments has steadily increased with an evident upswing from 2015.
At the end of 2015, the green debt capital market had just reached a cumulative volume of USD104bn. Five years later, the market surpassed the cumulative USD1tn milestone in early December, with the year ending at a USD1.05tn total.
Cumulative market size in 2020 reflects an average annual growth rate of 60% since 2015.
Top Themes for 2021
- The return of green multilateralism as a White House committed to action re-joins the Paris Accords, adds momentum to COP and pushes climate higher on the agenda at G7, G7+, G20, OECD and a host of other bodies
- The opportunity for a new climate triple-axis to slowly develop between China, EU and US as the world’s largest economic blocs align on the fundamental mid-century goal of zero-carbon
- Transition, Transition, Transition as institutional investor, policymaker and market focus grows on hard-to-abate sectors/industries, low carbon models and corporate capex plans
- The rise of the Sovereign Green Bond Club as governments, policymakers and development banks back new issuance in developed and emerging economies to accelerate private sector issuance and markets
- Green, social, sustainable and sukuk issuance proliferates, setting the pace towards the vital global milestone of $1trillion in annual green investment
- Sustainability is increasingly embedded in investment and financial market infrastructure as the twin influences of the EU Sustainable Action Plan/Green Taxonomy and increased central bank and financial regulator actions filter through multiple jurisdictions
2021 – What lies ahead
The impact of COVID-19 in 2020 proved a huge economic and social negative. In that context, the resilience of green finance markets led to a record year of issuance at USD269.5bn issuance, albeit a small increase over 2019.
2021 may enable a sustained resurgence.
The role of Green Sovereigns
The Sovereign GSS Bond Survey Report released earlier this month noted the multifaceted role that sovereign issuers have on the markets, both developed and emerging.
The list of possible issuers in 2021/22 includes Bhutan, Brazil, Canada, Colombia, Cote d’Ivoire, Denmark, Ghana, Italy, Kenya, Peru, Spain, the United Kingdom, Uzbekistan and Vietnam.
As we noted in December after Thailand made the second tap of their 2020 sovereign issuance, this line-up still leaves plenty of room amongst OECD, ASEAN and MENA nations to act.
First out of the blocks this year is Colombia with Bloomberg reporting(link is external) a programme of green offerings to commence in the second half of 2020.
Chile is again showing early leadership with the finance ministry announcing(link is external) a third round of sovereign green issuance, Certified against the Climate Bonds Standard in keeping with the previous 2019 and 2020 transactions.
At the supranational level, the proposed EU programme could be a pivotal influence with up to EUR250bn (USD300bn) of the recovery fund expected to be green bonds, though actual issuance is likely to extend past 2021.
NN Investment Partners(link is external) posits a 2021 green bond market of EUR300bn (USD360bn). HSBC(link is external) is predicting strong growth in Asia during 2021 and total green bond issuance(link is external) between USD310-360bn. SEB(link is external) envisages green bonds ‘moving towards’ USD500bn, subject to EU issuance. Credit Agricole(link is external) expects up to EUR600bn (USD720bn) in combined green, social and sustainability bonds for 2021.
At Climate Bonds, we forecast 2021 to produce a tenth consecutive green finance record with a figure ranging from a low to high USD400bn-USD450bn in global green bonds, loans and sukuk.
Social and sustainability bonds are expected to deliver USD250-300bn on top of that.
Transition in Focus
Further to these numbers, we’ll be looking more closely at social and sustainability bonds, climate resilience and continuing to expand our focus on transition finance, the coming area of challenge in decarbonising hard to abate industry sectors and driving investment and capex towards zero-carbon technologies and solutions.
Source: Climate Bonds
The priority should be to ensure continuity of cross-border services and avoid market fragmentation.
The order book was the largest for a sovereign green transaction.
RBC Capital Markets paid more than $800,000 to resolve charges that it engaged in unfair dealing in munis.
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.